IMF pleads for cash to avert crises

THE INTERNATIONAL Monetary Fund launched an urgent plea for fresh funding yesterday, after warning that resources were near an all-time low following a year of record financial assistance.

The IMF has just $10bn to $12bn in "lendable" resources. To put this in perspective, Russia spent $4bn in a matter of days in a futile attempt to prop up the rouble.

Speaking at the launch of the IMF's 1998 annual report, an official said there was a pressing need for the US House of Representatives to approve an increase in contributions. "The major problem is the lack of action in the House," he said.

The official said the "general feeling" was that the proposed increase would come through. But he added that if the additional contribution failed to materialise, the IMF would have to explore other options, such as entering into bilateral borrowing arrangements with individual governments as it did in the late-1970s and early-1980s.

In the year ending April 1998 - before the latest Fund assistance to Russia - member countries drew nearly $26bn from the IMF's general resources account, nearly four times the level of the previous year.

The IMF said: "The Asian financial crisis that broke out in July 1997 in Thailand, and its subsequent global reverberations, dominated the IMF's work. The crisis prompted a record level of IMF lending in 1997/98, adding immediacy to the need to strengthen the financial resources of the institution to enable it to continue playing a fully effective role."

The unprecedented level of financial assistance given by the IMF over the past year has prompted concerns about what would happen if the so- called "lender of last resort" were to run out of cash itself. An IMF official said the Fund will have about $25bn of uncommitted resources, after the assistance given to Russia. However, the IMF would be unwilling to lend all of this, as it needs some cash to pay back creditors who decide to withdraw their deposits.

The Fund's liquidity ratio is an estimated 29 per cent, meaning that the financial difficulties are on a par, if not worse, than the funding problems experienced in the late 1970s.

In its annual report, the IMF called the Asian crisis "one of the worst in the post-war period". Officials said they expected some trimming of the Fund's global growth predictions in its World Economic Outlook (WEO), due for release at the end of the month, but declined to provide details.

The IMF blamed the Asian crisis on a combination of elements, including a build-up of inflationary pressures, inappropriate exchange rate policies, unhedged external borrowing, lax enforcement of rules and weak supervision.

External factors were also to blame. The IMF said: "Foreign investors under-estimated the risk associated with their search for high yields, and contagion effects of the crisis led to an excessive devaluation of the affected currencies."

At the report launch, an official played down the problem of the so-called "moral hazard" - that is, where a country does not do all it can to solve crises because it knows the IMF will step into help. The issue has concerned members of the US House of Representatives.

But the official said: "We understand the concerns. But from a government's point of view it is not going to adopt policies which are not conducive to economic health."

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview